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SEB Jordbruksprodukter, 10 december 2012

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SEB - Prognoser på råvaror - CommodityVeteterminerna oavsett löptid och sida av Atlanten har inte rört sig ens en procent i veckan som gick. Majsen är ett par procent billigare och sojan är ett par procent dyrare. Rapspriset förändrades dock inte. SMP fortsätter att sjunka och smöret att bli dyrare, vilket innebär att kombinationen av dem (mjölk) är oförändrat sedan förra veckan. Klass III mjölk i USA har dock fortsatt att falla i pris. SEB fortsätter, att som första bank i världen, erbjuda sina kunder att prissäkra ett börsbaserat mjölkpris i kronor per kilo, i poster om 10,000 kg.

SEB-bankens vy på olika råvarupriserVi förnyar vår säljrekommendation på sojabönor. Marknadsutvecklingen ser riktigt svag ut.

Odlingsväder

Det fortsätter att vara torrt i USA och det påverkar inte bara de allt lägre förväntningarna på höstvetet inför våren, utan också möjligheten att transportera bort skördat vete och majs. Norra delarna av Mississippi-floden är inte längre farbar pga för lågt vattenstånd. Det rapporteras att silos är nästan fulla och att lantbrukarna får lov att skeppa majs via tåg till Texas, vilket är väldigt dyrt. Detta innebär att USA kan få svårt att exportera under vintern i den takt som varit vanligt. Det innebär också att lagerhyrorna stiger, vilket allt annat lika bör öka contangot i terminsmarknaderna för majs och vete framförallt i USA.

Den andra väderavvikelsen är det myckna regnandet i norra Argentina, som gjort att det har varit omöjligt på sina håll att så.

Väderkarta över USA

FAO

FAO’s senaste prognos över den globala spannmålsproduktionen under 2012 har reviderats ner marginellt med 2 mt till 2,282 mt sedan förra månadens rapport. Revideringen beror främst på justeringar av den beräknade produktionen av majs i Ryssland och Ukraina, efter att skördarna där nu går mot sitt slut, samt minskad produktion av vete i Australien och Brasilien där skörden nu pågår. Tidiga indikationer för höstvetet, som nu har såtts på det norra halvklotet, är blandade och något mindre lovande än för en månad sedan. Den senaste informationen tyder på att lantbrukare i allmänhet har ökat sådden av höstvete i respons till höga priser. Väderförhållandena är dock fortfarande negativa, med torka i delar av USA och Ryssland, medan stora producerande delar av EU har haft alltför mycket väta som har hindrat fältarbete.

Spannmålsmarknaden i siffror

Vete

Nedan ser vi kursdiagrammet för marskontraktet på Matif. Priset har fortsatt sidledes under veckan. Det är inte någon vidare styrka i marknaden. Om priset inte vill gå upp, kanske det snart är dags att testa nedsidan.

Diagram över vetepriset den 9 december 2012

Nedan ser vi kursdiagrammet för kommande skörd, november 2013. Vi ser att den senaste toppen i slutet av november var lägre än den i början av november. Vi ser också stigande toppar. Det är alltså en så kallad ”triangelformation”, från textboken. Dessa uppträder ibland vid viktiga trendvändningar. Vi får hålla ett öga på vad som händer, i synnerhet om stödlinjen skulle brytas, vilket sker om kursen på kontraktet faller ner mot 240 euro igen. Det kan då innebära att trenden har vänt ner. Än så länge är dock trenden uppåtriktad, men vi skulle inte ta nya färska positioner för ytterligare en uppgång.

Kursdiagram för kommande veteskörd

Den senaste GASC-tendern blev klar i veckan som gick. Den visade att franskt och amerikanskt vete tog hem det mesta. Rumänskt vete var med för leverans i närtid, men inte mot slutet av perioden. Ryskt och Ukrainskt vete var inte med alls, det kom inga erbjudanden alls. Det visar att dessa, som vi skrivit om tidigare, har nått sitt de facto ”exportstopp”. USA kan, pga stoppet i exportkanalen Mississippi-floden försvinna från världsmarknaden eller i vart fall minska. Ur detta perspektiv kan man inte utesluta ytterligare en pristopp i spotkontraktet under våren, alltså marskontrakten i Chicago och Paris.

Torkan i USA är så stor att man räknar med att upp mot 35% av HRWW-fälten kommer att överges och besås med annat. Det innebär att premien för högproteinvete troligtvis kommer att gå upp. De lantbrukare i Sverige som kommer att ”tvingas” så vårvete kan behöver därför troligtvis inte oroa sig för ett lågt pris vid skörd.

Index över statusen på vintervetet i USA

Maltkorn

November 2013-kontraktet har fallit i pris med ett par procent. Marknaden har tappat mycket momentum sedan uppgången i somras.

Maltkorn har tappat i momentum

Potatis

Potatispriset för leverans i april har fortsatt att pendla kring 30 euro per dt. Vi ser kursutvecklingen i diagrammet nedan. För leverans i april 2014, dvs av den kommande sommarens skörd, föll priset från 16 till 15.80 euro per dt. Hela prisfallet skedde i fredags. Under fredagen var priset nere på 15.50 euro, innan marknaden återhämtade sig till stängning på 15.80.

Potatispriset pendlar kring 30 euro

Majs

Majspriset (mars 2013) slutade veckan med ett ordentligt prisfall och stängde nära dagslägsta. Det ser ut som om fallet kan fortsätta ner mot det tekniska stödet på strax över 700 cent och testa det. Ett brott av det på nedsidan skulle signalera en större prisnedgång.

Majspriset (mars 2013) avslutade veckan med ett prisfall

Etanolproduktionen i USA var något högre än väntat, däremot rapporterade DOE lagerstatstik som var högre än väntat. Om USA når ”the fiscal cliff” är stödet för etanolinblandning i fara. USA kan också ta till en sänkning av inblandningen för att undvika att ”the fiscal cliff” ska slå till. Marknaden har också slagits av att exporten från Sydamerika är så stark, samtidigt som USA har stora exportproblem med Mississippifloden som redan är stängd för vintern vid de norra delarna, från St Louis och norrut.

Sojabönor

Sojabönorna har stigit i pris de senaste veckorna, men vi anser inte att detta är en stigande trend, utan en normal rekyl i en fallande marknad. Stödlinjen ligger strax under dagens kurs och vi tror att den kommer att brytas i veckan. Vi har därför en säljrekommendation alltjämt, men något mer aktualiserad i det här veckobrevet. Priset har gått upp till en nivå där man kunde vänta sig motstånd och slutet på rekylen. Nu väntar troligen ett nytt test på nedsidan av 1400-nivån.

Ingen stigande trend i sojabönor

Som vi nämnt ovan, är norra Argentina blött. Stora delar av delstaten Buenos Aires är drabbat av översvämningar. Sådden är var avklarad till 54% i veckan. Det talas om att lantbrukare byter från majs till sojabönor i ganska stor utsträckning, vilket gör det svårt att följa statistiken. Väderleksprognosen ser bra ut för Argentina i veckan som kommer, med huvudsakligen torrt väder.

Raps

Rapspriset (februari 2013) är oförändrat jämfört med förra veckan. Marknaden handlar i ett brett intervall, liksom sojabönorna. Däremot hann inte marknaden påverkas av prisfallet på soja i USA i fredags, då Matif redan hade stängt då.

Rapspriset är oförändrat

StatsCanadas senaste uppdatering av skördeestimatet kom in lägre än förväntat, på 13.3 mt. USDA hade senast ett estimat för Kanada på 13.4 mt. Men vid den sista juni har då Kanada bara 5 dagars konsumtion kvar i lager, vilket är osannolikt för lågt. Den här verkligheten talar för ett högt pris framöver, men det ser inte så ut tekniskt.

StatsCanadas skördeestimat

Gris

Grispriset (Dec 12) har fallit kraftigt i två dagar, efter att uppgången förmodligen nått sin topp i den uppgång som varat sedan augusti. Trenden uppåt är dock inte bruten än, men de två senaste dagarnas kraftiga kursfall stämmer inte med en marknad i uppgång. Prisfallet är för stort för det.

Priset på gris rör sig

Mjölk

Från EUREX priser på smör och SMP kan vi utläsa att priset för ett kilo mjölk (råvara) nu ligger på 3.51 kr per kilo. Priset på mjölkpulver i Nordeuropa har fortsatt att utveckla sig svagt.

FSP1 Comdty 9 december 2012

Nedan ser vi priset på smör, som är lite starkare än marknaden för pulver.

Priset på smör är starkare

Det börsbaserade priset i svenska kronor beräknas med formeln:

Det börsbaserade priset i svenska kronor beräknas med denna formel

där

BUT = priset på smör i euro per ton
SMP = priset på skummjölkspulver i euro per ton
FX = växelkursen för EURSEK.

Precis som vi skrev i förra veckans brev så fann priset på Klass 3 mjölk, på den amerikanska börsen CME i Chicago, tekniskt stöd på 19 cent per pund och rekylerade uppåt därifrån. Trenden är dock nedåtriktad och en rekyl uppåt tycker vi ska ses som ett säljtillfälle.

Precis som vi skrivit de senaste veckorna, har priset på klass 3 mjölk fallit ordentligt.

Pris på klass 3-mjölk har fallit

Enligt Nya Zeelands Fonterra Cooperative Group Ltd föll priset på helmjölkspulver till den lägsta nivån på två månader. Februarikontraktet för helmjölkspulver noterade en nedgång på 3.2 % till 3,157 usd/mt.

Prisutveckling på helmjölkpulver

Socker

Priset på socker (mars 2013) har misslyckats med att ta sig över motståndet på 20 cent. Istället bröts stödlinjen vid 19.40 cent i fredags. Det signalerar ett nytt test av 19 cent och kanske även 18.69, som är kontraktslägsta.

Diagram över sockerpriset den 9 december 2012

Gödsel

Spotkontraktet för Urea FOB Yuzhnyy som fann en stödnivå på 365 $ / ton i början av mnovember, har fortsatt att successivt stiga. Prisrörelsen ligger fortfarande inom det intervall som urea handlats till sedan juni. Det fortsätter alltså att vara stabila priser och det finns just nu inga tecken på att det ska förändras.

Stabila priser för Urea FOB yuzhnyy

EURSEK

EURSEK har inte orkat ta sig över 8.70 kr, utan istället stött på ganska hårt motstånd där. Kampen mellan köpare och säljare av euro mot kronor kämpar om övertaget. Ett brott på uppsidan av 8.70 skulle innebära att säljarna vunnit för tillfället. Vi noterar dock att bottnarna stigit den högre månaden, utan att högre toppar noterats. Det kan betyda att ett brott på nedsidan rycker närmare.

Valutadiagram för EURSEK den 9 december 2012

USDSEK

Dollarna fortsätter att handlas ”sidledes”. 6.60 kr per dollar ser ut som ett stöd. Kursen har vänt upp från den nivån två gånger sedan månadsskiftet oktober/november. 6.70 ser likaledes ut som en motståndsnivå. Vid 6.80 ser vi ytterligare en motståndsnivå. Just nu ser det ut som om vi kan förvänta oss ännu mer ”sidledes” rörelse inom detta intervall.

Valutadiagram USDSEK den 9 december

[box]SEB Veckobrev Jordbruksprodukter är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

Disclaimer

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).

Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.

About SEB

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic and other European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets) for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden; it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designated investment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEB conducts operations. SEB Merchant Banking. All rights reserved.

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Analys

The self-destructive force of unregulated solar power

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SEB - analysbrev på råvaror

Modifications

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Solar and wind power production has increased rapidly over the latest years as LCOE costs have fallen sharply while government support schemes have given it an extra boost as well. Solar and wind power production is totally unregulated supply. They produce whenever they produce. Fossil power supply on the other hand is fully dispatchable to the degree that we tend to take it for granted. As such we have naturally tended to underestimate the consequences of not having dispatchability in solar and wind power.

When you start out with a large, fossil-based power system it is fairly easy to add unregulated power supply from solar and wind because it can piggyback on the dispatchability and flexibility of the fossil power system. But as the share of unregulated renewable energy rises to a larger and larger share of production, the flexibility in the fossil part of the system naturally gets smaller and smaller. This problem is accentuated further  by the fact that solar power production has a very high concentration of production where 80% of production in a year is produced in only 20% of the hours in the year. Thus fossil flexibility and dispatchability is eroded much faster during these 20% hours.

Power prices typically collapse to zero or negative when demand is fully met or saturated by unregulated power supply. That again implies that solar power profitability collapse as well. And the result of that of course is that the exponential growth in solar power production which we now take for granted and which we expect will lead us all the way to zero emissions could come to a full stop as well.

This is already a rapidly increasing problem in California where more and more renewable energy is denied access to the grid because there simply isn’t enough demand for it just then or because the grid cannot handle it. But it is also becoming an increasing problem in Germany where the strong growth and high concentration of solar power increasingly is destroying the power prices just when they produce the most.

The need for biiiig, cheeeeap grid batteries are now becoming increasingly critical for the the exponential growth in solar and wind power to continue.

We fear that the self-destructive force on power prices, of exponential growth in unregulated solar power, is some kind of Solar-hara-kiri process with respect to its own profitability. And that it has the potential to develop along a curve of ”first gradually, then suddenly”. And when/if that happens the exponential growth in unregulated solar power production should naturally come to a screeching halt.

The resolution of the problem is of course the eventual arrival of biiiig, cheeeap grid batteries which then again will sett solar power production free to resume its exponential growth. 

Feeding solar and wind power supply into a fossil system is easy to start with. Then very difficult. It is easy to build unregulated solar and wind power supply into a flexible fossil system. It is easy to infuse unregulated power supply (Solar and Wind) into a power system where there is lots and lots of fossil based power. Fossil supply can then back-off and make room for solar and wind power whenever the sun is shining or the wind is blowing and then ramp up again when it suddenly disappear.  But when unregulated, renewable energy supply keeps growing it becomes harder and harder to infuse yet more of it into the system as the fossil flexibility is increasingly eroded. That’s when yet more supply of solar and wind is no longer pushing aside fossil supply but instead is starting to destroy their own prices.

Solar power produces 80% of its production during 20% of the hours in the year. Solar power has however a much more tightly focused production profile than wind. In Germany in 2023 some 80% of all solar power production was concentrated on only 20% of the hours of the year. For wind power the 80% share of production was spread out over 50% of the hours in the year. The reason is of course that the wind can blow both summer and winter and night and day. Solar power is instead focused during the day and during summer. It has a much higher concentration of production.

Power prices tend to collapse when demand is fully covered by unregulated power supply. When solar power production grows rapidly in a given power system then its high production concentration will eventually lead to full saturation during certain hours of the year. Demand during these hours will then be fully supplied and covered by unregulated power like solar, wind, run-of-river hydro and other unregulated supply. That is great as it means that the fossil share in these hours then are close to zero.

The problem is that power markets, more than any other commodity market in the world, are extremely sensitive to imbalances in supply and demand. A little bit too little supply and the power price can spike up to close to infinity. A little bit too much supply and the price crashes to zero or negative.

When unregulated power supply reaches full demand saturation during certain hours then power prices tend to collapse because it is so easy to get a little bit too much supply.

It is not a problem when power prices collapse for just a few hours per year. But the number of hours affected is growing rapidly many places. The US EIA highlighted in October 2023 (”Solar and wind power curtailments are rising in California”) that this is becoming a bigger and bigger problem in California. Since 2019 the power system operator there has been forced to curtail supply of unregulated power more and more. There simply isn’t enough demand in certain hours to meet the spikes in unregulated supply or the grid isn’t up to the task of distributing the unregulated supply in the system.

So when producers of unregulated supply produces the most they increasingly are denied access to sell it into the grid or if they are allowed to sell it into the grid the price is close to zero or even negative.

US EIA: Solar and wind power curtailments are rising in California

US EIA: Solar and wind power curtailments are rising in California
Source: The US EIA in October 2023

Germany is increasingly affected as booming solar production is depressing prices more and more. This is now also a rapidly increasing problem in Germany where rapid growth in supply of solar and wind power together increasingly are forcing power prices lower just when they produce the most.

Average German power prices for hour 1 to 24 for certain periods and years. Highly concentrated supply of solar power during summer and during the day is increasingly forcing power prices towards zero during these periods

Average German power prices for hour 1 to 24 for certain periods and years
Source: SEB calculations and graph, Blbrg data

It is like ”Solar hara-kiri” when increasing supply of solar power is killing its own prices and profits. It was not a big problem economically when only a few hours are affected. But as more and more hours are affected it is becoming an increasing problem. It is like ”Solar hara-kiri” where rapidly rising supply of solar power is increasingly killing its own prices. With that it is killing its profits. And if profits are killed than new-build and growth in supply will typically slow down rapidly as well. 

This is probably not a big problem globally yet as the global power system is still predominantly fueled by fossil fuels which can back off when renewable energy spikes up. But in certain pockets of the world where penetration of unregulated power supply has reached high levels it is becoming an increasing problem. Like in California and in Germany.

The volume weighted solar power price in September 2023 in Germany had a 38% discount to power prices during non-solar power hours. And the discount looks like it is rapidly getting bigger and bigger.

The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile. In Germany in September 2023 solar power producers only achieved 62% of the average price during hours of the day when the sun wasn’t shining.
The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile.
Source:  Source: SEB graph and calculations and graphs. Based on German 15 min solar power prod. extracted from Blbrg

First gradually, then suddenly. There is a clear risk here that this progresses along a process of ”first gradually, then suddenly”. This is already what we have seen over the past couple of years: The discount for what solar power earns when it produces power versus what the power price is when it is not producing is increasing rapidly as more and more unregulated power supply hits right into the ”demand ceiling”. The inflicted pain from this process so far has to a large degree been masked by incredibly high natural gas prices. So even if the profitability for solar power has been eroding, the average power price in the system has been much higher than usual due to high natural gas and CO2 prices.

Graphing all the individual hourly data for solar power and power demand in Germany in 2022 we see that solar power alone is not yet reaching full saturation versus demand.

Germany 2022: Hourly German power demand and solar power supply in 2022. A total of 8760 hours for each in consecutive order. Her showing only Demand and Solar power production
ourly German power demand and solar power supply in 2022
Source: SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply is increasingly hitting the ”demand ceiling”. If we now add all the other sources of unregulated power supply, predominantly offshore and onshore wind and run of river, then we get the following picture where we see that unregulated German power supply increasingly is hitting right up and into the ”demand ceiling”. In those instances there will be no, flexible fossil power supply left to back off and that is typically when power prices collapse or go negative.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours for each in consecutive order.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

High unregulated power supply saturation vs demand implied lower power prices in 2022. Sorting 8760 individual power prices in Germany from Y2022 from lowest to highest shows that power German power prices were strongly related to the penetration of unregulated power supply. In the following graph, we have  sorted the data from the lowest price to the highest price in the year 2022. Prices were ireasingly depressed when unregulated power penetrated up and into the ”demand ceiling”. Natural gas prices were extreme in 2022 and overall power prices were exceptionally high for that reason as well. But the tendency of price destruction in relation to high levels of unregulated power vs demand is clear.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply penetrating vs demand was even deeper in 2023. If we make the same graph for the year 2023 from 1 Jan to 20 Oct, we can see how the unregulated power is penetrating deeper and deeper into the power ”demand ceiling”. As a result the solar power discount vs. non-solar power hours from March to September in 2023 reached an even higher discount in 2023 than in 2022.

2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest. German power demand was down 8.3% YoY in H1-2023 due to the European energy crisis and still very high power prices
2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

Solar power hours and non-solar power hours is not given as a clear cut-off, but a gradual one. In the following graph given as average profiles of the year from hour 1 to hour 24. First calculated explicitly for solar power production and then the inverse is calculated from that one. These solar power profiles can then be calculated for each individual day in the year giving individual inverse-curves on a daily basis.

The daily ”solar power production profiles” and the ”non-solar power production profiles” typically looks like this graph but calculated individually per day as solar power production varies from day to day and through the seasons. The solar power production profile is explicitly given by the actual solar power production that day while the non-solar power profile is derived directly from this and the inverse of it on a daily basis.
The daily "solar power production profiles" and the "non-solar power production profiles
Source: SEB graph and calculations and graphs. German 15 min solar power prod. extracted from Blbrg

The exponential growth in solar and wind power is likely to slow down in the years to come as grid constraints and lack of power cables is holding up growth in renewable energy with waiting times for access of 5-10 years:

Offshore wind auction’s lack of bids must be ‘wake-up call’ for UK, says RWE chief”

FT: ”Gridlock: how a lack of power lines will delay the age of renewables”

FT: ”Will there be enough cables for the clean energy transition?” 

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Analys

Surge in US crude inventories dampens bullish sentiment

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SEB - analysbrev på råvaror

Price action
Brent crude is currently trading at USD 81.4 per barrel, marking a decline from its February peak of USD 83.6 per barrel recorded yesterday (February 14th), representing a notable drop of 2.6% within a short span of time.

Ole R. Hvalbye,
Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

This morning, crude prices continue to slide, following a larger-than-anticipated increase in US crude inventories (+12.0 million barrels) as reported in the US Petroleum Status Report (EIA). This uptick in inventories is attributed to a further decrease in refinery operations and a relatively softer demand for petroleum products.

Yesterday, crude prices flirted with January highs amidst geopolitical tensions in the Middle East and sustained production cuts by OPEC+. However, the surge in crude inventories observed recently, the most significant since November 2023, is tempering bullish sentiment. Notably, inventories at the ”key” Cushing, Oklahoma, exceeded expectations for this time of year (refer to page 2 in attachment).

Adding to the bearish sentiment is the widespread reduction in oil product inventories, primarily influenced by refinery outages rather than a substantial uptick in demand. Notably, US crude oil refinery inputs averaged 14.5 million barrels per day, marking a decrease of 297 thousand barrels per day compared to the previous week, with refineries operating at 80.6% of their capacity.

Recent market expectations suggest the likelihood of prolonged higher US interest rates due to persistent inflationary pressures, resulting in a stronger US dollar. This aspect contributes to weaker oil prices, as the cost of procuring oil in other currencies becomes relatively expensive, thereby impacting short-term demand dynamics.

Oil inventories

Changes in Inventories:
Crude Oil Excluding SPR: Commercial crude oil inventories (excluding SPR) increased notably by 12.0 million barrels, representing a 2.8% rise from the previous week, but still a substantial 6.8% decrease from the same period last year. However, the surge exceeds typical seasonal adjustments, indicating potential reduced crude demand, and a more well-balanced market.

Distillate: Distillate (diesel) fuel oil inventories declined by 1.9 million barrels, showcasing a 1.5% decrease from the prior week but a significant 5.4% increase compared to the same period last year (naturally from very low levels). The weekly drawdown contributed to a further decline compared to normal, and now distillate stocks remain approximately 7% below the five-year average for this time of year – indicating sustained demand or constrained production.

Gasoline: Total motor gasoline inventories witnessed a decrease of 3.7 million barrels, marking a 1.5% decline from the previous week but a modest 2.2% increase from the same period last year. This reduction aligns with seasonal expectations, albeit slightly exceeding typical adjustments.

Jet Fuel: Inventories of kerosene-type jet fuel increased by 0.1 million barrels, representing a minimal change of 0.2% from the prior week. However, compared to the same period last year, jet fuel inventories surged by 12.1%, indicative of potential shifts in air travel for the start of 2024.

Crude & Product Including SPR: Total petroleum stocks, inclusive of SPR, witnessed a modest increase of 5.9 million barrels, indicating a 0.4% rise from the prior week. However, compared to the same period last year, total stocks experienced a notable 2.4% decrease.

Crude & Product Excluding SPR: Excluding SPR holdings, total petroleum stocks increased by 5.2 million barrels, reflecting a 0.4% rise from the previous week but a 2.1% decrease compared to the same period last year. Despite the weekly increase, petroleum stocks remain below historical averages for this time of the year.

Supply and Demand:
Supply remained relatively stable, with domestic crude oil production and imports showing marginal fluctuations. However, net imports witnessed a notable decline, reflecting shifts in trade patterns and production capacities.

Demand for petroleum products witnessed a decline, as evidenced by product supplied figures. The declines in certain product categories suggest nuanced shifts in consumer behavior.

Exports and Imports:
Exports surged by 751 thousand barrels per day, indicating robust international demand for US petroleum products. Conversely, imports witnessed a decline of 437 thousand barrels per day.

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Analys

The EUA price could drop to EUR 40/ton and then be picked up by Airliners, Shipping and Utilities

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The EUA price is dropping hard along with a sharp decline in the front-year TTF nat gas contract. The typical last-round sell-off in EUA prices have typically been a final sell-off of 10-20-30%. From EUR 60/ton level it implies a price decline down to EUR 54; 48; 42/ton. The front-year nat gas price and the front-year Coal-to-Gas (C-t-G) differential is what has held the EUA price above EUR 60/ton. But if the TTF 2025 price falls down to EUR 27/ton the front-year C-t-G differential will fall all the way towards EUR 40/ton. That TTF 2025 falls to EUR 27/ton or lower seems likely to happen and the risk is high that the EUA price will be sucked down along with it. But nat gas demand is starting to come back with a lag in nat gas price declines in the EU but probably also in Asia. Thus first an over-sell in nat gas prices, then demand revival and then a rebound in both nat gas prices and EUA prices. Airliners, shipping companies and Utilities will probably buy as much EUAs they can get if the EUA price fall down towards EUR 40/ton.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Front-year 2025 TTF nat gas price falls hard and so does the EUA price. The front-month EUA price dropped 2.7% yesterday to EUR 58.97/ton and thus broke out of the sideways trend around EUR 61/ton since 18 January. Today it has sold off another 3.2% to EUR 57.1/ton.

Again it is the nat gas price which is leading the way and more specifically it is about the front-year nat gas which lost 1.9% on Wednesday and another 2.5% again ydy to a close of EUR 30.65/MWh and today it has solf off 2.8% to EUR 29.8/ton.

The EUA price has very clearly been balancing on the front-year Coal-to-Gas (C-t-G) differentials. The C-t-G differentials have been significantly lower than EUR 60/ton both at the front-end of the curve (1-2-3 month) and for calendars 2026 and 2027. But the front-year nat gas price has held up at around EUR 31/MWh quite well since around mid January. 

How far down will the EUA price go? The final sell-off could be down towards EUR 40/ton. With these dynamics the big question then becomes: How far down will the front-year nat gas contract sell? It will of course sell off too far as commodities always do. The reason commodities do this is the natural reactive chain of events which normally comes with a lag: First the price goes down before dropping hard in the final round of the sell-off. Then demand comes back with a lag to the price action. This again drives the price back up and off from the lows to a level consistent with the revival in demand. If demand instead had reacted immediately to lower prices then the hard drop at the end of the sell-off might not have happened.

Looking at previous hard, final sell-off-drops in the EUA price we can see that final drops typically have been 10-20-30% as the last final drop. If we take the EUR 60/ton as the starting point of this final drop, then we are talking an EUA price bottom of somewhere in the range of EUR 54; 48; 42/ton.

Global nat gas demand destruction in the face of very high nat gas prices solved the energy crisis. Let’s link this back to price action in nat gas. The reason why Europe has managed the recent energy crisis (Russia/Ukraine, nat gas,…) so surprisingly well is 1) Large reduction in nat gas demand in EU due to exceptionally high prices and 2) Significant demand destruction in Asia freeing up nat gas to flow to the EU. I.e. it was global demand destruction of nat gas in response to extremely high prices globally which solved the energy crisis. It was solved by the global market.

Demand for nat gas is starting to come back as the price falls. The nominal historical average nat gas TTF price was EUR 20/MWh from 2010 to 2019. But the real average was EUR 26/MWh. So seen from the eyes of consumers in both Europe and Asia, a price of EUR 26/MWh is an historically absolutely normal price. Demand for nat gas should thus naturally accelerate back towards normal levels at current nat gas prices. Not just in Europe, but also globally in all regions exposed to nat gas prices set by global LNG prices. This is already happening in the EU. Temp. adj. demand destruction vs. normal has typically been running at around 16% from mid-2022 to December 2023. Average ytd is 14% while the last 15 days is 9%. Demand destruction is fading as the price of nat gas is falling. But do remember that this is also happening in Asia but it is harder to track.

Normal nat gas demand AND normal gas prices is not consistent as Russian nat gas exports still down 1100 TWh/yr. There is however an inconsistency here in expecting normal prices and normal demand for natural gas now onward. The inconsistency is that the EU and thus the world is still robbed of the normal flow of nat gas on pipelines to Europe. This amounts to a loss of 3 TWh/day and thus close to 1100 TWh/year. When this gas is no longer flowing to the EU it isn’t flowing anywhere. It is lost to both the EU and the world. Until that is, Russia has built loads of new pipes to Asia and new LNG terminals. And that takes years.

A return to normal prices and normal demand while the world still is missing 1100 TWh/year of Russian nat gas isn’t really a consistent outcome in our view.

Demand for nat gas will continue to revive as the price of nat gas keeps falling. But both the EU and the world still need of a nat gas price at above normal levels to induce a certain amount of demand destruction until the point in time when new LNG export facilities globally has managed to replace the 1100 TWh/year we have lost from Russia.

Front-end TTF nat gas down to EUR 27/MWh could drive the EUA price to EUR 40/ton. The dynamic sell-off nat gas, prices will likely move lower than to the level which over time is consistent with continued need for some demand destruction globally.  This because demand revival will come with a lag to the decline in prices. It is thus fully plausible that the TTF 2025 contract moves all the way down to EUR 27/MWh (or maybe even lower). If so it would imply a 2025 C-t-G differential of only EUR 40/ton for the EUA price to balance on and reference to. That could be the final hard drop in the EUA price. That’s a 30% drop from EUR 60/ton. But it won’t last because that nat gas price is likely too low vs. what is needed globally to maintain some level of demand destruction for a while longer.

An EUA price of EUR 40/ton would also be too cheap to resist for a range of market participants and they’d likely jump in and purchase with both hands. Airliners and shipping companies which will have difficulties of shifting away from fossil fuels and will need EUAs for years to come. Also utilities could step in and purchase large amounts of EUAs even if forward margins are negative. Some EU based utilities with large fossil-based assets bought truckloads of EUAs from 2011 to 2017 when the EUA price ranged from EUR 3/ton to EUR 9/ton. For them the EUA certificate is not only a marginal cost. It is also a licence to operate. The EUA price will of course not return to that level again. But if we move to EUR 40-50/ton, then it will probably trigger strategic buying by shipping companies, airliners as well as utilities.

Front-year TTF nat gas TTF price is dropping and leading the EUA price lower after a period of sideways action since mid-Jan

Front-year TTF nat gas TTF price is dropping and leading the EUA price lower after a period of sideways action since mid-Jan
Source: SEB graph, Blbrg data

But the EU and the world is still missing some 3 TWh/d or 1100 TWh/yr of piped nat gas from Russia. When Russian nat gas is no longer flowing on pipes to Europe, it is flowing nowhere.

Natgas
Source: SEB graph, Blbrg data

Nat gas demand destruction in the EU has been running at 15% to 17%  since mid-2022 in the face of high nat gas prices. But demand destruction is now fading down to 8%. Demand has started to come back as nat gas prices fall. Demand is probably also coming back in Asia, but not so easily to see.

Nat gas demand destruction in the EU
Source: SEB graph and calculations, blbrg data

EU nat gas demand destruction has started to fade.

EU nat gas demand destruction has started to fade.
Source: SEB graph and calculations, Blbrg data

Forward Coal to Gas (C-t-G) differentials vs EUA market prices. The EUA price has balanced on the front-year differential. But that has now fallen like a rock along with the fall in front-year TTF nat gas price.  Lead the EUA into a free-fall

Forward Coal to Gas (C-t-G) differentials vs EUA market prices.

The front-year Coal-to-Gas differential is a distribution of crosses between many different levels of efficiencies for coal and nat gas power plants. Averages of these are EUR 52.4/ton with Coal at USD 94.3/ton and Nat gas at EUR 29.8/MWh (both front-year 2025 prices). So EUA price is still hanging high.

The front-year Coal-to-Gas differential
Source: SEB graph and calculations, Blbrg EUA market price
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